Fixed-term contracts: how long should they last?

The advantages

A fixed-term contract (FTC) typically has one of three outcomes; it may:

l specify an exact end date;

l run for a set period of time for example, 10 months;

l terminate at the end of a specific project.

The benefit is that they offer employers the ability to buy in skills or expertise without adding to their permanent head count. But there are some legal issues that must be considered. So what do you need to know?

Firstly, while an FTC can be renewed, it is vital that the individual's total period of employment doesn't exceed four years. If it does, the Fixed Term Employees (Less Favourable Treatment) Regulations 2002 apply. These state that, at this point, an FTC automatically converts to a permanent contract, unless you can objectively justify why it shouldn't. So, as a general rule, never use FTCs for four or more years.

Unfair dismissal rights

Employers often assume that, because they have offered an FTC, the employee doesn't accrue unfair dismissal rights. Unfortunately, those who work on one (or more) continuously for a year gain the continuity of service necessary to bring this type of claim as if they were employed permanently.

The termination of an FTC even if this occurs on a date previously agreed by the employee is always a dismissal. So if they have worked for you continuously for a year, you must be able to show that:

l a fair dismissal procedure was followed;

l it was reasonable to dismiss them in all the circumstances;

l you considered whether or not they could be redeployed.

Alternatively, if you break their continuity of employment before the one-year mark, this problem ceases to exist for example, by having a break of 14 days between each six-month FTC.

To further protect you, an FTC should always include an early termination clause. Doing this allows you to bring the contract to an end sooner and without being in breach of contract for example, if you have no further need for the individual or it is just not working out. In the absence of this type of clause, the employee may be entitled to claim damages, which are equal to the pay and benefits of the unexpired portion of their FTC.

Assuming an FTC is for a set time, it automatically terminates once that period is up. But while you don't have to give formal notice, avoid misunderstandings when that date draws close by confirming the end of the contract, when this will happen and the reason why.

l For a free sample of our fixed-term contract, which includes an early termination clause, contact the NAMB on 01920 468061.